Oil prices fell Tuesday, as oil output from Saudi Arabia's East-West pipeline is coming through faster than anticipated.
Front-month November Brent crude futures fell 2.4% to $102.76 a barrel. The November Brent contract expires Tuesday, with December set to become the front-month contract. U.S. benchmark West Texas Intermediate fell 3.5% to $89.38 a barrel.
Both benchmarks had pared gains Monday of reports that Saudi Arabia resumed loading vessels at the Red Sea port of Yanbu via its East-West pipeline, a key export route that bypasses the Strait of Hormuz.
The recovery of the pipeline is proceeding quickly. "The Saudi's East/West pipeline flows have moved up to 50% of normal - quicker than expected at nearly 3.5 million barrels a day," said BOK Financial in a note Tuesday.
The East-West pipeline had been carrying roughly 4 million barrels a day before it was shut due to damage caused by drone attacks on Sept. 10. The pipeline has around 7 million barrels a day of crude capacity, including roughly 2 million barrels a day serving refineries, and links eastern oil facilities with Yanbu.
Meanwhile, President Trump rejected an Iranian proposal for a seven-day ceasefire that would have reopened the Strait of Hormuz and resumed nuclear negotiations in exchange for the U.S. lifting its blockade of Iranian ports, The Wall Street Journal reported. In a post on Truth Social, Trump denied reports that sanctions relief and unfreezing funds is being offered to Iran.
The return of Saudi Arabian oil is seen as potentially pushing Iran into a position where a military move becomes more attractive. Leverage it held by choking off the flow of oil through the Strait of Hormuz is evaporating - although both sides are looking for an "off-ramp" for the conflict, said BOK Financial.
Saudi Arabia has also increased shipments through its Gulf terminals. Loadings from Ras Tanura have risen to around 6.5 million barrels a day from roughly 1.5 million barrels a day in early September, according to Kpler. More broadly, crude exports from Saudi Arabia, the United Arab Emirates and Iraq have recovered to nearly 13 million barrels a day, the highest since the war began on Feb. 28 and close to 80% of prewar levels, Kpler data showed.
The key question is whether Saudi Arabia can sustain higher Gulf shipments as exports from Yanbu recover, said Hamad Hussain, senior economist at Capital Economics. Sustained flows through both routes could lift Saudi exports above levels seen before the pipeline attack and add more crude back to the market, he said.
In the U.S., markets are also watching for new information about a potential diesel export ban, which has been proposed by the Trump administration. Such a ban would likely direct more diesel into the U.S. market, while tightening markets in Europe and South America.
"The diesel export ban discussion is the most consequential near-term policy question for energy markets," said Claudio Galimberti, chief economist with Rystad Energy. Galimberti adds that lower prices in the U.S. would be only temporary. "Domestic U.S. gasoline and jet fuel prices would rise over time as U.S. Gulf Coast refiners would be forced to reduce their runs before long," he said.
Analysts surveyed by The Wall Street Journal are forecasting tomorrow's weekly petroleum report from the Energy Information Administration to show slight drops in both crude oil and distillate inventories last week.
Natural gas futures fell by 2.8% to $3.017 per million of British thermal units Tuesday, falling on mild weather conditions seen in the eastern portion of the United States.
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